The 1004MC or Market Conditions form is a new addition to residential appraisal. It is a standard form that must be included with all residential appraisals involving mortgage loans. It’s not perfect in every way, but it’s a useful way for valuers to understand the markets. This article offers some perspectives and advice.
Personally, I agree in principle with the 1004MC concept. Real estate appraisers have long needed a standardized methodology to determine market trends. This new form was implemented on April 1, 2009 after being modified to account for the different levels of data available from local sources such as MLS. Not all MLS services across the country provide enough analytical tools and information for the appraiser to provide a complete analysis, while other MLS services are highly sophisticated. It depends on where one lives and works. The 1004MC also provides transparency into the appraiser’s conclusions about the market and gives the appraiser a much better perspective on past and present market activity.
The use of the 1004MC is still very new and it will be some time before those who fill it out and those who review the results really understand how to do it. Although it seems easy to complete (and it is), the interpretation of the raw data is much more difficult. For example, the results may show a large increase in the number of homes available on the market and a corresponding increase in the number of months of inventory. This can be as simple as the start of the summer shopping season, or it can be more complex, like a large number of foreclosed homes coming online, a new subdivision with dozens of homes available for sale, or perhaps a huge layoff that is causing an unusually large number of people to want to sell. It is up to the appraiser to understand what the market and the economy are doing to figure out the cause.
I would caution both private reviewers and state compliance reviewers to allow a reasonable amount of time (about 1 year) for industry to adjust to and understand the 1004MC, and private reviewers should realize that trying to reproduce The appraiser’s results may produce variations from what they obtained, even when using exactly the same parameters and spreadsheet formulas. It will take some time for all errors in the source materials to be resolved, and it is well known in the appraisal industry that in some MLS systems, two identical data searches even moments apart will return different data results. This can be faulty databases, faulty database recovery software, or perhaps simply data changes due to the input of many thousands of MLS users throughout the day. The 1004MC revision will be much less challenging (and potentially less damaging) if a degree of variation is accepted as normal.
Some MLS services provide an easy-to-use spreadsheet with the necessary formulas already built-in, along with a special MLS lookup function specifically for the 1004MC form, where the adjuster uses a paste function to apply the raw data to the form. spreadsheet. I want to provide some helpful tips for those appraisers lucky enough to have this tool.
One tip is to always make sure to scan the price list in the raw data run before analyzing it. Some agents include listings for sale and for rent in the same category. In other words, listings of homes for rent for, say, $800 a month can be mixed with active, pending, or sold homes for, say, $100,000. The 1004MC uses median (middle) prices, but those $800 rents don’t belong in the analysis and can drag down the true median. Appraisers can use average (media) prices when necessary and those $800 rental listings will certainly affect average prices. I have also seen prices entered incorrectly in MLS where the agent or her assistant got the price completely wrong or tried to enter a sale price that included both dollars and cents, which many MLS systems will interpret incorrectly. This does not affect the median, but it will affect the average. Be careful with your raw data and filter out information that doesn’t belong there.
Another tip is to double check when completing the foreclosure section of the form. If your MLS allows it, narrow your second search to include only foreclosed homes however your MLS describes them (foreclosures, repossessions, REOs, etc.) and then paste only those results into a separate spreadsheet for analysis. This will quickly give you REO/foreclosure trend information and takes just a few minutes.
Another tip is when defining your neighborhood, unless you are absolutely sure of the boundaries, try searching the internet for sources. Many cities have voluntary or involuntary neighborhood associations that have their own websites and often describe their territories. Spending a little time doing this and marking them on a wall map will go a long way for you, not only for 1004MC purposes, but also to better understand your city.
Another tip is to pay attention to the statistical aspect of your data. If your defined neighborhood produces only a handful of data (samples) to work with, be careful because too few samples can easily produce distorted results. A good minimum number of samples is at least 100. But if you can’t find more than 50, you’ll need to reconsider your neighborhood boundaries or carefully explain distorted or confusing analytical results.
Another piece of advice is to never “raise” your 1004MC form. In other words, don’t open an old one, insert the new data and continue. It is all too easy to forget to review and correctly check the general trend boxes and to modify other sections. Always make a new completed form.
Another tip for Windows users is to create a shortcut to your specially designed 1004MC blank spreadsheet in the taskbar at the bottom of the screen. This makes it easier to call it without having to close or minimize other windows.
Many appraisers do not have or cannot afford Microsoft Excel software. An alternative is the Calc program, which is part of the free OpenOffice.org software package. Calc is an Excel clone and has most, if not all, of the same features as Excel. So another tip for Windows users using Open Office Calc is, after you make your first spreadsheet, save it and then use Windows Explorer to find it. Before reopening it, left-click once on the file name to highlight it, then right-click and select “Properties” from the popup menu. Now search for “Open with” and choose “scalc” or follow the prompts to find and choose the program “scalc” and make sure to check the box that says “Always use the selected program to open this type of file”. Accept the change. From now on, Windows will use Calc as the default program to open your 1004 MC spreadsheets, saving you a few steps.
One last piece of advice is when your MLS 1004MC data run comes as a separate file (text, etc.) that you paste into your spreadsheet, always save your data run along with your spreadsheet. Never rely solely on your spreadsheet software to store your data. It’s all too easy to make a mistake when saving data from a spreadsheet. It is part of your working file and should be saved.